Conventional Loans
Conventional loans aren't federally guaranteed. Qualifying can be tougher than with government loans, but the options fit a wider range of buyers and properties.
What Is A Conventional Loan?
A conventional mortgage loan is one that’s not guaranteed or insured by the federal government. Most conventional mortgage loans, aka conventional mortgages, are "conforming," which simply means that they meet the requirements to be sold to Fannie Mae or Freddie Mac. Fannie Mae and Freddie Mac are government-sponsored enterprises that purchase mortgages from lenders and sell them to investors. This frees up lenders’ funds so they can get more qualified buyers into homes.

Conventional mortgages can also be non-conforming, which means that they don’t meet Fannie Mae’s or Freddie Mac’s guidelines. One type of non-conforming conventional mortgage is a jumbo loan, which is a mortgage that exceeds conforming loan limits.

Because there are several different sets of guidelines that fall under the umbrella of "conventional loans," there’s no single set of requirements for borrowers. However, in general, conventional loans have stricter credit requirements than government-backed loans like FHA loans. In most cases, you’ll need a credit score of at least 620 and a debt-to-income ratio of 50% or less.
Comparing government loans and conventional mortgages
Government-backed loans are insured by federal agencies. This insurance protects the lender if the borrower fails to repay the loan and is meant to encourage lenders to offer mortgages to a wider range of home buyers.

Conventional mortgages are offered by many lenders that also offer government-backed loans. Lenders generally view conventional loans as riskier because they’re not guaranteed by the government, so conventional mortgages tend to have tougher requirements.

Mortgages backed by government agencies offer different qualifications that can make them more attractive to some home buyers.

Advantages of conventional loans

  • More property types: In addition to jumbo loans for pricier homes, conventional loans can be used for a second home or an investment property.
  • More control over mortgage insurance: If your down payment on a conventional loan is less than 20%, you'll have to get private mortgage insurance. After your principal loan balance drops to 78% of the home’s value, however, you can ask to cancel your PMI. In contrast, mortgage insurance premiums on FHA loans can last for the life of the loan.
  • No program-specific fees: Though you'll likely still pay fees to the lender, conventional loans don't have the additional program-specific costs of government-backed loans. For example, with an FHA loan you'll pay a 1.75% upfront mortgage insurance premium; VA loans have a funding fee of 1.4 to 2.3%, depending on your down payment.
  • More choices in loan structure: Though 30-year fixed-rate conventional mortgages are the most common, you can find other terms (like 15- or 20-year loans) as well as adjustable-rate mortgages. Since lenders don't have to stick to government-prescribed programs, they can create more options.

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Prime Home Loans, Inc. NMLS #98975; NMLSConsumerAccess.org. Equal Housing Lender. Licensed in. AL - Consumer Credit License #20786; AL – Mortgage Brokers License #21657; FL – Mortgage Lender License #MLD1554; GA – Mortgage Lender License/Registration #14971; MD – Mortgage Lender License #22966; MI – 1st Mortgage Broker/Lender License #FL0022835; SC-BFI – Mortgage Lender / Servicer License #MLS-98975; TN – Mortgage License #109087; TX-SML – Mortgage Company License; VA – Broker License / Lender License #MC-6798. Conditions may apply.